ACH is an electronic network for financial transactions. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers may be used for direct deposit payroll and vendor payments. ACH transfers may include consumer payments on insurance premiums, mortgage loans, and other kinds of bills.
Businesses increasingly use ACH online and at physical POSs to have customers pay, rather than via credit or debit cards. ACH systems are also present in countries other than the US, where they may be alternatively referred to as low-value clearing systems.
The Federal Reserve Banks are collectively the nation's largest automated clearing house operator, and in 2005 processed 60% of commercial interbank ACH transactions. The Electronic Payments Network (“EPN”), the only private-sector ACH operator in the U.S., processed the remaining 40%. FedACH is the Federal Reserve's centralized application software used to process ACH transactions.
Reserve Banks and the EPN rely on each other for the processing of some transactions when either party to the transaction is not their customer. These interoperator transactions are settled by the Reserve Banks.
The ACH payment system is also used by consumers for payment of consumer transactions at a point of sale (“POS”). Merchants generally pay lower fees for ACH transactions compared to the credit and debit cards, but ACH generally provides merchants with fewer services and/or protections compared to credit and debit cards. Credit and debit card transactions typically involve payment networks and, while credit and debit card transactions may have higher fees than ACH transactions, credit and debit cards generally provide the merchant with an authorization and a guarantee of payment for an authorized transaction—i.e., debit and credit cards are a “good funds” model while ACH is not, making ACH less desirable.
Many merchants may find that ACH is problematic and presents insufficient credibility for POS transactions. While the customer is in the store at the POS, the merchant must decide if they are willing to risk if the customer presently has the existing funds or that the funds will exist at the time of ACH batch settlement. Settlement generally occurs at a point after the purchase has been made and the customer has left the merchant's location. If the customer does not have sufficient funds to cover the purchase at the time of ACH settlement, the transaction may fail. If the ACH transaction fails, the merchant must then find another means to collect the funds from the customer. This is similar to a bounced check.
It would be desirable to transact at a POS using ACH while enhancing the merchant's knowledge about the customer's funds availability.
It would be further desirable to transact at a POS using an ACH while limiting merchant exposure to certain network irregularities, such as unforeseen charges and/or network failures.
It would also be desirable to provide an electronic platform which supports ACH customer transactions at a POS at a transaction cost that is relatively lower than the transaction cost associated with existing credit card or debit card transactions while providing enhanced ability to determine the credibility of the transaction.